Rail 'strategy' could cost extra £870m

TURNING the new 'strategic plan' for the railways into reality could cost taxpayers and passengers up to £870m a year extra, thanks to the industry confusion sown last October, when Railtrack was forced into administration.

Railtrack bonds pay 7.75% interest, though they are supposedly guaranteed by the State. Government bonds pay just 4.85%. The 2.9% difference, on £30bn, would cost £870m annually.

Even debt-burdened BT pays only 5.9%. Investors are demanding a higher rate to compensate for the risk of default. Andrew Roberts, gilts specialist at investment bank Merrill Lynch, explained: 'The key word is supposedly. People do not think they are guaranteed to get their money back.'

The yield has soared since Transport Secretary Stephen Byers threw the company into administration. The Strategic Rail Authority's plan needs at least £30bn in private sector funds.

Railtrack Shareholders Action Group, representing big investors, warned that, if this cost an extra 0.5% a year, the post-administration bill would be £150m a year higher. Others put the extra cost at 1%, or £300m a year. If Railtrack's successor has to pay the same rate as the current bonds, the cost soars to £870m. If private funding needs to be £34bn, the bill is even bigger.

To reduce it, the Government must restore its credibility in the capital markets. But one City source said: 'Bondholders have been pressing for some clarification since October, but still haven't heard anything.'

Railtrack chief executive Steve Marshall and his investors asked to see Byers' papers relating to October's move. He shows no sign of meeting their request by today's deadline. Byers, hailing the SRA's vision, said: 'We have the money and now we have a detailed industry plan, so there can be no more excuses.'